5 Biggest Challenges Small Businesses Face Right Now
Source: CO- (a publication of the U.S. Chamber of Commerce)
As small business owners take stock of their performance metrics and look forward to the year ahead, many are feeling more optimistic than in the past. The most recent MetLife and U.S. Chamber of Commerce Small Business Index recorded record-breaking optimism among small business owners about the future. However, concerns remain about the economy, the labor market, and managing supply chain issues related to global events. These are the five challenges keeping small business owners up at night.
Inflation
Rising inflation isn’t just an issue for consumers — it’s one of the biggest challenges for small business owners, too. Inflation disproportionately impacts small businesses, which have less leverage when it comes to buying power compared to their larger competitors. “Nearly 80% of small business owners say their expenses have increased by 6% or more, according to Chase’s Midyear Business Leaders Outlook,” reported Yahoo Finance. “In response to higher costs, raising prices on products and cutting expenses top the list of ways entrepreneurs are trying to limit the effects.”
For many small businesses, inflation has eroded already thin profit margins. Mama Moore's Gourmet Popcorn Founder Debra Moore told Yahoo Finance that inflation has forced her to pay 200% more for some of her essential ingredients. Many are turning to additional financing to fuel growth and stay operational.
Access to credit
Speaking of additional financing: A survey by Goldman Sachs found that more than three-quarters of small business owners are concerned about their ability to access capital. “Just a year ago, 77% of respondents said they were confident about their access capital. Now the tables have turned, with the same percentage citing concern,” reported the investment bank.
The challenge of accessing credit is tied to rising interest rates as well as banking stress resulting from regional bank closures. Small businesses disproportionately rely on smaller banks—and this year, the failures of Silicon Valley Bank and Signature Bank caused many small businesses to lose their source of funding. The closure of these regional banks put stress on the entire banking system, so even small business ventures that didn’t patronize Silicon Valley or Signature banks have felt the impact of this turmoil.
Rising interest rates
Compared to last quarter, small businesses are less concerned about interest rate hikes, according to the Small Business Index. Nevertheless, rising interest rates remain a top challenge for small businesses today.
“Rising interest rates are causing some in the small business community to say they are seeking out financing more earnestly,” wrote Thaddeus Swanek, Senior Writer and Editor at the U.S. Chamber of Commerce. “Three in four small businesses (76%) say that rising interest rates are limiting their ability to raise capital or financing for their business. The spike is also stunting growth, as 50% of small businesses report that they have delayed plans to grow their business due to rising interest rates.”
Inflation, rising interest rates, and access to credit are three facets of the same problem: Small businesses are struggling to get the fuel they need to grow sustainably. It’s a challenge, however, that many feel will ease going into the new year.
Hiring and employee retention
These economic pressures are making it difficult for small businesses to keep their best talent onboard and continue attracting new hires. The Q3 2023 Small Business Index found that “[o]ver half of small businesses (56%) say it is challenging to keep up with their employees’ salary expectations or demands.”
Likewise, companies that are trying to hire are struggling to fill open roles. A CNN Business survey reported that small business owners had trouble filling job openings, a consistent challenge that’s been historically very high since the beginning of the year.
“SMBs, which employ only up to 1,000 people, typically have much smaller margins than big-box companies,” explained Capterra. “It’s harder for mom-and-pop retailers to compete for workers against Fortune-500 counterparts that advertise attractive pay and benefits, let alone weather the costs of attrition in the first place.”
Supply chain disruptions
Finally, supply chain delays that originated from the pandemic continue to be a challenge for some small businesses. In 2023, 23% of small businesses said supply chain issues are a top concern.
While larger enterprises have found ways to work around blockages in their supply chains, small business owners don’t have the same financial flexibility. Experts say that economic conditions, rising inflation, and global tensions in places like Ukraine and China will continue to create challenges for small business supply chains through to 2024.
Small businesses that have switched to domestic suppliers have already found relief. “Though they may charge more than their overseas counterparts, you may be able to eliminate most of the logistical issues that come from shipping products halfway around the world and actually get your products,” reported Nav.
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CO— is a publication of the U.S. Chamber of Commerce that aims to bring you inspiration from leading respected experts. Before making any business decision, you should consult a professional who can advise you based on your situation. CO—is committed to helping you start, run, and grow your small business. The Columbia Montour Chamber of Commerce is a proud member of the U.S. Chamber.